Int Market entry

International Market Entry Strategies Module — Law and Ethics

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Conducting International Business in an Ethical Manner

A Company That Cares

For nearly a century, U.S.-based Panting Steel has been a profitable scrap metal company. The firm purchases scrap metal from sites across the U.S. and Europe and recycles it to produce finished steel products that it resells to steel mills. A major part of its operations involves dismantling used automobiles. It sells the reusable car parts at low cost to international customers and processes the remaining scrap.

With the growing global interest in sustainable business practices, Panting Steel’s profits have risen considerably, and it has expanded into new international markets for purchasing scrap metal and selling its products. It has a strong business code of conduct and is committed to conducting global business in a professional and ethical manner. Managers and employees are encouraged to take personal responsibility for ensuring that Panting Steel’s business code of conduct is adhered to. The company has even set up a confidential hotline for employees to report any suspicions they have of unethical behavior.

Making New Deals in China

The scrap metal market in Asia has become increasingly profitable in recent years. To take advantage of this, Panting Steel purchased a South Korean scrap metal processing company called KSN International. This takeover provided Panting Steel with an Asian base without having to make substantial investments in new manufacturing sites and processing equipment. All of KSN’s managers and employees were retained after the takeover, and Panting Steel sent over two senior U.S. employees to oversee operations and make sales.

A New Way of Doing Things

The U.S. employees were treated very hospitably by the KSN team and worked hard to forge business links and develop interest in Panting’s used car parts and reprocessed steel. Panting began targeting other companies in South Korea, as well as steel mills and car parts dealers in Japan and China. Representatives from a Japanese company, Hokomito, a refurbished car parts dealer, were invited to South Korea to meet with Panting’s management team. Hokomito wanted to negotiate a business deal in which KSN, as a subsidiary of Panting, would become Hokomito’s preferred supplier.

International Market Entry Strategies Module — Law and Ethics

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The business negotiations went very well, and KSN’s management suggested that Hokomito’s representatives would enjoy a day of golfing at KSN’s golf club, at its expense. Panting’s two American employees agreed that this would be a nice gesture, although a very expensive one, and also arranged for business dinners that evening. The following day, as Hokomito’s representatives were leaving for the airport, they were presented with gifts of perfume to take to their wives. They reciprocated with several gifts they had brought from Japan. One American employee grew concerned about this, but was reassured that, in Asia, important relationships were always cemented with gifts.

Panting Steel’s U.S. employees also visited a steel mill in China to discuss the export of processed steel products. The management of the mill was very impressed with Panting’s prices and the quality of the processed steel pieces. It was also aware of KSN’s excellent business reputation and eager to do business with Panting’s subsidiary. However, the Chinese management explained that it would find importing the processed steel from South Korea problematic. It informed Panting’s representatives that, when it had imported steel previously, customs officials regularly requested a substantial payment to process the shipments in a timely fashion. These facilitation payments would result in Panting Steel’s prices not being such a good deal for the steel mill after all.

Disheartened, the Panting Steel employees returned to South Korea and discussed the meetings with their KSN counterparts. The KSN managers were clear about what action should be taken. They proposed making annual payments of USD 50,000 to the managers of the steel mill to cover future facilitation payments to Chinese customs officials. One American employee was adamant that this would be bribery and could not happen. The other employee pointed out that the payment was to cover facilitation payments and so was not illegal. It was obviously a small price to pay to do business in Asia.

Learning Outcomes This case study relates to the following learning outcomes from the module Law and Ethics in the course International Market Entry Strategies:

• Describe the relevant legal environment related to international market entry and the factors that can restrict or support international trade ventures, including international, national and regional laws and regulations, international treaties, international business governing organizations, and domestic and international legal and court systems

• Ensure that international entry strategies for exporting, importing or directly investing in a foreign market will meet the domestic and international legal requirements.

• Establish and document a corporate code of ethics related to international trade and identify possible components of a global ethics policy.

International Market Entry Strategies Module — Law and Ethics

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1. Did Panting Steel’s employees or KSN’s managers act in an unethical or illegal manner at any time during the visit from Hokomito’s representatives? Explain your reasoning.

2. Should Panting Steel follow the advice given by KSN to make facilitation payments to owners of the Chinese steel mill? Explain your reasoning.

3. Would it be illegal or unethical for Panting Steel or KSN to make facilitation payments to customs officials?

4. What action should Panting Steel take to ensure that its business activities in Asia meet its strong business code of ethics?

Case Study Questions

International Market Entry Strategies Module — Law and Ethics

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Photo Attributions

Photo #1 (Iron) Attribution: No attribution required Licence: Public Domain, free for commercial use pixabay.com/en/iron-scrap-scrap-metal-scrap-iron-1508237 Photo #2 (Handcuffs) Attribution: No attribution required Licence: Public Domain, free for commercial use pixabay.com/en/handcuffs-money-corruption-economy-2070580 Photo #3 (Steel mill) Attribution: No attribution required Licence: Public Domain, free for commercial use pixabay.com/en/steel-mill-worker-foundry-metal-616526